Revisiting concepts, creating indicators and regulating burgers
Howard Davies kicks off Global Policy’s Responses to the The Governance Report 2013 by Hertie School of Governance. Oxford: Oxford University Press, February 2013. 176 pp, £9.99 (paperback), 978 0199674428. For a quick introduction to the report and other Responses please click here.
“Governance is a relatively new word for a relatively new experience”. So writes Horst Koehler in the foreword to the Governance Report 2013. Reviewers said the same thing, I recall, when Harold Wilson published his memoir, “The Governance of Britain” in 1976. Wilson has not lasted well as a former Prime Minister: you can find a signed hardback copy of his book, complete with dust jacket, for £11 on AbeBooks. But governance, which seemed anachronistic forty years ago, has become an increasingly fashionable topic, especially in Berlin it seems, where the Hertie School resides.
It is a good moment to ask questions about global governance. There is a sense that some of the major groupings have lost their way. The most recent meeting of the G7, chaired by the UK, descended into farce when briefings emerged which were pointedly critical of Japanese policy towards the value of the yen, yet which were strenuously denied a few hours later. Few people can explain precisely what the G8 does, and after a flying start post financial crisis, the G20 is languishing. Though it had existed for a decade or more, as a finance minister’s creation (the brainchild of Paul Martin, a former Canadian finance minister, as it happens) George Bush thrust it into the limelight by convening a summit in Pittsburgh in November 2008, at a time when the world’s financial system seemed close to meltdown.
In the first two years it knocked the heads of financial regulators together with some effect. A new bank capital regime was devised in double-quick time. But since then the agenda has become less clear, and summits have come and gone, with little more than a bland communique to remember them by. In Davos this year I took part in a workshop session with the Russian G20 sherpas whose aim was to devise a meaningful agenda for their presiding year. We did our best, well-orchestrated by Ngaire Woods of the Blavatnick School, and some plausible ideas emerged. But the sense of an organisation in search of a mission was palpable.
It is clear that there is a market for well-informed academic thinking on how to enhance the effectiveness of global governance. Helmut Anheier and his colleagues are to be congratulated on launching this initiative, which envisages a series of reports until, one presumes, all the problems of global governance have been satisfactorily resolved. We can, therefore, look forward to many further editions.
In their first report, Anheier and his colleagues have set the bar high. There is an appealing blend of theory and practice. The text is punctuated with case studies of successful, and less successful global agreements. It is perhaps unlucky that the first of these, entitled “Governing the Burger” describes the “many rules and regulations around meat production”, which have been developed through a complex series of interactions between producer interests, governments, consumer protection groups and animal rights activists. Anheier concludes that, “The simple patty on your plate thus actually is the highly multi-level, multi-actor outcome of a complex process of governance”.
Unfortunately, as we have recently discovered, it may also be a donkey. It would seem that all this multi-layered, multifaceted governance may easily be circumvented by a handful of determined fraudsters motivated by a powerful profit motive. The burger model may not be one to follow.
We have seen the same circumvention, on a truly heroic scale, in financial markets, which has resulted in a major process of re-engineering of the global rules. Clark, Copelovitch et al. describe this process competently in their contribution on financial regulation. They correctly point out that global governance did not keep pace with global markets in the decades before the crash. Macroeconomic imbalances built up, without any effective response from the IMF, the G7 or the Financial Stability Forum, which had been set up after the Asian crisis precisely to provide a central point for monitoring vulnerabilities in the global financial system. They are also right to argue that after some initial enthusiasm for global solutions in the white heat of the crisis in 2008-9, national solutions have increasingly been preferred in the EU, the US and indeed in Asia.
But they remain of the view that the major continuing problem is one of growing globalization of markets, and an inadequate oversight system among the public authorities. That looks an increasingly outmoded perspective. In fact we are in the midst of a powerful process of deglobalisation of financial markets. Cross-border bank lending has collapsed since 2008, and other cross-border investment flows have similarly been cut back. Global banks, especially those based in Europe, are retreating fast from overseas markets. Within Europe itself the single financial market has engaged reverse gear. Large French, British and German banks are divesting subsidiaries elsewhere in Europe at fire-sale prices and retreating to home base, under pressure from their regulators.
As British banks began to collapse in 2007-8, Mervyn King of the Bank of England pointed out that the problem the authorities faced was that major banks might well be global in life, but they were national in death. In other words, the home authorities were left to pick up the pieces when they fell over, providing liquidity and capital, and effectively inviting domestic taxpayers to underwrite loss-making ventures overseas.
The lesson of this unhappy episode has been learnt around the world, and the result is not wholly welcome. It is an example of the old adage “be careful what you wish for”. Regulators have pressed banks to strengthen their capital base to support their home market lending. Since new equity for banks has been hard to secure, banks have pulled back from marginal activities and sold off subsidiaries. As a result, many smaller markets are finding that the overseas banks which added capacity and competition to their markets have gone home, leaving a home grown banking system which lacks the capacity to support growth. I expect that problem will rise rapidly up the agenda of the G20 this year.
The premise of Clark, Copelovich et al. is that where global governance is weak the markets are powerful. Paradoxically, deglobalisation driven by stronger regulation, in reducing competition, might make some private firms more powerful than before in their local markets. The trade-offs are more complex than is dreamt of in their taxonomy.
The Chapter on governance innovations suffers from a different problem. We lose focus on the problems of international collective action, which animate most of the rest of the book, and home in on some micro-initiatives in individual countries, whose common theme is hard to discern. The Norwegian Government’s pension fund has been an aggressive promoter of forms of corporate social responsibility, and has reflected Norwegian public opinion in rejecting investment in arms manufacturers, for example. Only convinced pacifists could imagine this to be a model with universal application.
At the other end of the spectrum, there has been a very small scale experiment with Social Impact Bonds in a mid-sized UK town called Peterborough. The idea is to link the return on those bonds to the success a private provider of offender management services has in reducing re-offending rates. It is a neat idea, devised by an imaginative and public-spirited former venture capitalist, but it is far too early to see whether it will work in practice, and provide a model for the management of other social services.
There is no harm in bringing these ideas to the attention of a broader audience, but I was left unpersuaded by the attempt to brigade them into an overall governance framework. We are promised more work in this area; I will watch it with interest.
The Chapter which is likely to attract most attention is the attempt by Anheier, Stanig and Kayser to “introduce a new generation of governance indicators”. Others have tried to find this holy grail, from the World Bank, through the World Economic Forum to Transparency International. Anheier believes their work has “important limitations”, including challenging what he calls “methodological nationalism in that they only consider the nation state as the appropriate unit of analysis”. Also, multinationals and NGOs are typically bit-part players.
Anheier posits a set of governance requirements (GR) which he thinks are the essential building blocks of effective organisations or mechanisms. For example, GR1 is described as “averting the risk of dual – market and state- failure”, while GR2 is “correcting fairness deficits”. He then asserts an assessment framework with four poles: efficacy, effectiveness, performance and legitimacy. Using these two devices, and adding a series of distinctive indicators at global, national and sub-national level, he begins to map and measure the impact of a range of different bodies and initiatives. He bravely shows scatter diagrams of countries and institutions.
It is easy to pick small holes in this large canvas. It would be more constructive for experts in individual areas, whether peacekeeping or financial regulation, to seek to apply it in their own areas. Only then will we discover whether it is a workable tool, which will allow more penetrating analysis of governance, and facilitate the articulation of better alternatives.
Perhaps inevitably, in a work of this kind, the specific recommendations listed in the final section are underwhelming. Recommendation 1 is that “there is a great need for policy analysts to find positive-sum solutions to public good problems, and to inform, even educate policymakers and publics accordingly”. Amen to that, I say: hands-up all those of you who are against positive solutions to public good problems. Number 3 is that “the UN Secretary-General should consider establishing a high-level commission on responsible sovereignty”. One does not need to be a Tea Party activist to wonder whether that is likely to lead to an actionable agenda.
But, as is often the case, the journey is more rewarding than the destination. It may be possible to dispute the opening assertion that governance is a new word for a new topic. But it is clear that the issues remain as interesting, and intractable as ever, and that Hertie have identified a rich seam to mine.
Howard Davies is Professor of Practice, Sciences Po, Paris.
